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A Special International Report Prepared byThe Washington Times Advertising Department
Published on May 28, 1999
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Advertisers (1) Associated Banks
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A pillar of prosperity and security
The sector has developed in line with other countries' prosperity to become a sophisticated system dealing in any and all currencies. Although the budget is prepared in Spanish pesetas, Andorra's system as a whole is attuned to following investment without restricting dealings with other countries. Andorran accounts are opened in the currency of the client's choice, with interest rates varying according to which is used, and freedom to switch between currencies at the client's discretion. Although the seven-part banking sector dominates the country's financial activities, the rest of the financial business takes place through private loan and investment portfolio management companies, and 36 insurance businesses.
Competitive legislation
The new legislation also defined the duties of the Andorran Institute of Finance (INAF) -created in 1989Ð which examines the regulations of the Principality's financial sector and oversees institutions" compliance. As the technical executive body of the monetary authorities, the INAF also manages public funds and promotes investments of general interest, especially in the areas of infrastructure, housing and agriculture. Andorra's developing government knows that the Principality's political and economic future lies in the proper legislation and regulation of its central industry: finance. It aims to produce controlled growth, passive and prudent policy action, along with a low profile that will calm the fears of European powers wary of Andorra's fiscal status. The opening of the banking sector contemplates an increase in the foreign capital allowed into Andorran banks Ðup to 51 percent- and the entrance of three new players. For over three decades banking entities were not allowed entry into the system, mainly thanks to a 1968 decree by the country's General Council after the financial failure of Sobanca -Societat de Banca Andorrana. The country's seven other banks responded by buying its debt and bad portfolio. "By that time, Andorrans feared the consequences of a financial scandal," Josep Segura, General Secretary of the Andorran Banking Association (ABA), said. "Besides, we never intended to become an international banking center with of-shore capabilities -even though other small states with similar characteristics have opted to do so. It was considered there were already enough banks for the country's dimensions." According to the Association's President, Santiago Guillen, the level of development of Andorra's banking sector is similar to that of Spain Ðover the European average. In Andorra's case the sector grew along with the economy, pacing the country's neighbors', and at the same speed as the commercial sector. "We haven't been aggressive in terms of growth - banks have sustained an average annual growth rate of approximately 7 percent. We are aggressive within the country, very competitive in the internal market, but not abroad," said Josep Peralba, CEO of the country's largest bank, Credit Andorra.
Andorran banks self-imposed regulations date back almost 10 years, forbidding bankers to seek out foreign markets. The regulations are finally in the process of becoming law: "Foreigners can open accounts in Andorra at will, but we can't go to their country to seek prospective clients," Jordi Aristot, CEO of the financial group including Banc Internacional and Banca Mora, said. Bankers agree that, in terms of growth, all financial activities have taken place under the basic criteria of a complete passive policy. Segura explained: "We like to keep our profile low and our quality service high. It is self-defense against potential criticism. Andorrans have always been aware that an aggressive policy could bring benefits in the medium term but become disastrous in the long run." Segura said that under this policy, banks have been capable of "selecting" clients. Foreigners can make unlimited deposits in Andorran banks, but bankers are very strict in ascertaining the identity of clients and the provenance of their funds. "There is a limitation in quality, not in quantity." Andorra's financial system is also very rigorous about maintaining customer confidentiality. According to the "code of secrecy" law, banks may only divulge information with regard to their clients for legal proceedings.
A model of integrity
Since 1990, banks have undertaken to maintain the basic principle of banking secrecy and to ensure that the financial system is not used to launder funds obtained through criminal activities. In order to safeguard its reputation, as well as protect the country from potential attempts to abuse traditional guarantees and freedoms, banks agreed to self-imposed strong measures against the laundering of money from drug trafficking and other criminal activities. "We did so even before Britain, France or Spain," Segura said. "We anticipated this would become a major source of concern for European countries, and experience has proven us right." The results of the concerted effort between Andorra's judicial and banking system have merited international recognition. "We have proven that effective action against money laundering is compatible with a respect of the banks' code of secrecy, without deteriorating the normal relations between banking entities and their customers," Guillen said. One of the main factors in the reputation of Andorra's banking system is its high level of capitalization and the solvency ratio of its institutions -well above the 10 percent required by current Andorran legislation or the 8 percent required by European standards. "Our solvency ratio ranges from 18 to 37 percent, depending on the institution," Segura said. Another important component is the fact that no excessive speculative policies have been employed regarding products and services to organizations of so-calling "emerging countries", which has allowed Andorra more than 50 years of banking activity without any kind of crisis. "We have never lost our minds with easy money. We have opted for smaller profits, but with less risk," Cerqueda said.
Opening to investment
Banc de Sabadell of Spain has already offered to base itself in Andorra, an offer which contemplates the inclusion of local capital in the new institution. Historically, there has been foreign participation -essentially Spanish and French- in Andorra's banking system, with foreign capital still a significant force. Out of seven Andorran banks, just three are fully owned by Andorrans -Banc Agricol i Comercial, Banca Mora and Banca Reig. Europe's recent wave of mergers and acquisitions in the financial market have also left their traces on Andorra's banking system. Spanish leading financial group Banco Bilbao Vizcaya (BBV) holds 30.3 percent of Banc Internacional; Spanish savings and loans institution La Caixa has a 32.6 percent stake in Credit Andorra and fully owns CaixaBank; J. Henry Schroder Bank of Geneve and Caixa de Catalunya of Spain hold 18.3% and 5% respectively in Banca Privada d'Andorra. Andorran bankers are aware that global partners are useful to gain access to international markets. Banca Privada d'Andorra (BPA), owned by a group of Andorran entrepreneurs and the Schroeder Bank of Switzerland -a filial of the British Schroeder financial group,- constitute two of the players. Joan Pau Miquel, BPA's General Manager, said that as Andorra's smallest and newest bank, foreign participation tends to respond to the bank's own desire for growth. "In a global village, international projection is key," he said. "We have a partner with more than 200 years of international prestige. Their participation will give us access to international markets." CaixaBank is the only entity fully owned by foreign capital, its presence in Andorra dating back to the early 1930's. The bank's President, Pere Roquet, believes Andorra does not need to expand its banking system at present. He said the entrance of new players should be postponed until the complete implementation of the euro -Europe's new common currency. "The sector is very mature, there is already fierce competition," he said. "Besides, Andorra is not such an enticing market. It requires a significant investment and, given our small dimension, returns would not be ensured." There are reservations among other bankers about the entrance of new entities into Andorra's banking system. They express anxiety about new institutions not complying with Andorran banks' traditional practices of prudence and passive action, which does not interfere, they said, in quality and sophistication of services. "The local market is well served - there are actually 49 branches spread throughout the country- and there is tremendous competition, which has developed without the need of an open market," Guillen said. He noted that international competition and a decrease in margins due to low interest rates have prompted banks to introduce new and more sophisticated products as well as enhancing their quality of service -retail and private banking continue to be the core of their business. "With traditional margins under pressure, we realized the way forward for us was to widen the range of products and services which, relying on high quality technical and human resources, can satisfy the most demanding client," Cerqueda said. Andorra's experience is in universal banking. Segura stressed that in terms of quality, professionalism and service Andorran banks can respond to the ever more complex needs of their clients. "We are small banks, but with the most advanced know-how," he said. "As we say, the good jelly is in the small jar."
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Table of Contents (1) A young country with an ancient history |
The banking sector has always been the central pillar of the Andorran economy. Its reputation for security and clean dealing has enabled the country to prosper as one of Europe's smallest states. Andorra's banking system has been self-regulated for many years, with solvency, liquidity and capitalization ratios higher than the international average.
Globalization, the introduction of the euro among Andorra's neighbors and
the opening up of its financial sector have all brought changes to the banking system. In 1993 the
Andorran General Council approved the first law to regulate the financial system with the aim of
establishing a structured framework for the sector. Since then, there has been gradual legislation
aimed at defining the outline within which the system is to develop. "This new legal framework,
together with our bank's tradition of transparency and good reputation of solvency, seriousness and
trust, will lead us to consolidate Andorra as a prestigious financial location, capable of competing
with the most demanding markets," said Minister of Finance Susagna Arasanz.
Manuel Cerqueda, President of the
country's oldest bank, Banc Agricol i Comercial, believes that other countries' concerns have
influenced Andorra's banking sector limited growth. He said Andorrans have historically been very
cautious with the susceptibilities of their French and Spanish neighbors.